Why Is Intel Stock So Cheap?

Key Takeaways on Intel's cheap stock price

• Over the past five years, Intel's stock has dropped 62.4%, driven by declining revenues and shrinking market share in the chip sector.
• In Q3 2024, Intel reported a steep net income loss of $16.64B and a gross margin of just 15.03%.
• Competition from Nvidia and AMD remains intense, especially in AI and data center markets.
• Analysts see little reason to invest in Intel until its strategic shifts deliver results, possibly by 2030.
• Intel is focusing heavily on AI, cloud computing, and data centers, aiming to leverage these growing markets.

Intel Corporation (INTC), once a titan in the semiconductor industry, has seen its stock price languish in recent years. As competitors surge ahead, many investors are left wondering: Why is Intel stock so cheap, and should I consider buying it?

This article delves into the factors contributing to Intel's current market valuation, evaluates its financial health, and assesses the question is intel stock a good investment.

Why is Intel stock so low? Financial analysis

Weak financial performance

Intel has faced significant challenges in recent years, resulting in notable underperformance in the stock market. Over the past five years, Intel's stock has tumbled by 62.4%, reflecting multiple-quarter revenue declines and a dwindling market share in the chip sector. This persistent underperformance has left investors cautious, which helps explain why Intel stock is so cheap.

Quick financial insights on why Intel's stock has gone down:

• Financial Health: Intel's Q3 2024 results show a sharp decline in net income (-$16.64B) and gross margin (15.03%), reflecting operational challenges. EPS plummeted to -$3.88.
• Valuation: Intel's P/E ratio is inconsistent due to negative earnings, while its P/B ratio (1.04) is below industry averages, indicating undervaluation. The dividend yield has slightly improved to 2.09%.
• Growth Concerns: Revenue YoY growth is declining (-6.17%), and EPS YoY change (-5620.08%) highlights severe profitability issues.

Moreover, Intel's financial results have often failed to meet Wall Street's expectations, exacerbating the decline in its stock price. For instance, Intel's Q1 2024 earnings missed revenue forecasts and offered weak guidance for Q2 2024, leading to a further decrease in Intel's stock value.

These disappointing financial outcomes have underscored the challenges Intel faces in regaining its competitive edge and investor confidence.

Challenges from competition and technological delays

Intel faces stiff competition from companies like Nvidia (NVDA) and AMD (AMD), particularly in the AI and data centre markets. These competitors have been more successful recently, partly due to their focus on AI and advanced chip technologies.

Furthermore, Intel has lagged in adopting new manufacturing technologies like extreme ultraviolet lithography (EUV), which has allowed competitors to gain an edge in producing more advanced chips. This technological delay has further contributed to Intel's struggles to maintain its market position.

Shift to foundry business and high operational costs

Intel is transitioning to a foundry business model, aiming to manufacture chips for other companies. This shift involves significant investment and has yet to prove profitable. In 2023, Intel's foundry division reported a $7 billion operating loss. The foundry business is capital-intensive, and Intel has forecasted that losses in this division will peak in 2024, with a break-even point not expected until 2027.

Low valuation and cautious analyst outlook

Compared to its competitors, Intel has lower forward price-to-earnings and price-to-sales ratios, suggesting that the market values the company less favourably due to its recent performance and future uncertainties.

Analysts have expressed caution regarding Intel's prospects, noting the challenges in its foundry business and the competitive pressures it faces. Some analysts have suggested that there is no compelling reason to own Intel stock until its strategic transitions show tangible results, potentially around 2030.

Intel's stock is considered cheap due to a combination of disappointing financial performance, intense competition, strategic and operational challenges in transitioning to a new business model, and cautious outlooks from market analysts. These factors have led to lower investor confidence and a reduced market valuation.

Intel's next-gen AI chips: A stock surge ahead?

Intel recently unveiled its latest processors, which the company hopes will help it regain market share from rivals in the rapidly expanding AI data centre market. The new next-generation Xeon 6 AI data centre chips come in two types: a powerful processor designed to handle the workload of larger AI infrastructure requirements and an efficiency model aimed at replacing earlier-generation chips.

Intel's innovative Gaudi 3 accelerator kit, which houses eight Xeon 6 chips, will sell for around $125,000, making it considerably cheaper than Nvidia’s comparable HGX server system. This competitive pricing could potentially attract a significant number of buyers, boosting Intel's position in the AI data centre market.

A failure to hold the recent low around $25.40 could see Intel shares revisit key multi-year support near $20.50. This suggests that while the new product launches and strategic shifts show promise, Intel's stock price still faces substantial hurdles, particularly in the face of ongoing market volatility and competition.

The success of these next-gen AI chips could be a pivotal factor in Intel's stock performance. If the company can effectively capture market share and demonstrate the superiority and cost-effectiveness of its new products, it might see a surge in stock price. Investors will be closely watching the market's reception to these innovations to gauge whether Intel can truly turn its fortunes around.

Is Intel a good stock to buy

Intel's stock has the potential for significant growth, driven by its strategic positioning in the AI and data centre markets and the expected growth in its Client Computing Group (CCG) segment.

However, the company faces challenges, including competitive pressures and the need to meet its ambitious technological and financial targets.

Investors should weigh these factors and monitor Intel's progress on its strategic goals when considering whether intel is a good investment.

Intel stock price prediction 2025

Predicting the future performance of Intel's stock in 2025 involves multiple factors, including its financial health, market trends, technological advancements, and broader industry dynamics.

This same analysis also goes for multiple other stocks to invest in 2025. However, below is a broad breakdown of what could affect Intel's stock going into next year.

Intel's new product launches and innovation

AI & Data Center Focus: Intel is heavily investing in AI, cloud computing, and data centre solutions. If Intel can successfully capitalize on these growing markets with its new products (like its Sapphire Rapids chips), this could help drive revenue growth and a potential future stock rebound.

Advanced manufacturing: Intel has been working to regain its edge in chip manufacturing with its push towards 7nm and 5nm nodes. If they successfully ramp up production without delays, it could improve investor sentiment.

Macro-economic factors

Global Supply Chain Issues: Intel’s operations could be impacted by global semiconductor shortages or supply chain disruptions, which might hinder its ability to ramp up production.

Inflation & Interest Rates: Broader economic conditions, including inflation and rising interest rates, could affect consumer spending and corporate investment in tech, both of which are critical for Intel’s recovery.

Leadership and strategic direction

CEO Leadership: Intel’s success under the leadership of Pat Gelsinger (CEO since 2021) will play a major role in its future trajectory. Investors are looking for signs that the company is executing on its strategy effectively.

Restructuring and Cost Cutting: Intel has undergone a significant restructuring, and how well this strategy is implemented will also influence its stock. Cutting costs, improving operational efficiency, and focusing on high-margin products are key areas to watch.

Investor sentiment

Stock Valuation: If Intel’s stock remains undervalued compared to its peers, it could present an opportunity for a rebound. However, if its fundamentals don’t improve, the stock might continue to lag.

Is Intel a buy?

Intel’s stock has strong potential for a rebound in 2025, but this will depend largely on how well it executes its product roadmap, manages competition, and navigates external challenges.

If the company can capitalize on the AI and data centre boom, while addressing its manufacturing challenges, it could see meaningful growth. However, there’s still a significant level of risk, especially given its competition with AMD and Nvidia.

In short, Intel’s rebound in 2025 is possible, but not guaranteed. Investors will need to watch for updates on its product launches, market share, and overall economic conditions in the coming quarters.